Chapter 2 - The Accounting Equation and The Double Entry System
Chapter 2 - The Accounting Equation and The Double Entry System
Chapter 2 - The Accounting Equation and The Double Entry System
ELEMENTS OF FINANCIAL
THE ACCOUNT
STATEMENT
- the basic summary device of accounting
Assets, liabilities, and equity - relate is the account. A separate account is
maintained for each element that appears
to a reporting entity’s financial position
in the balance sheet (assets, liabilities,
and equity) and in the income statement
(income and expenses). The simplest form
Income and expenses - relate to a
of the account is known as the “T” account
reporting entity’s financial performance.
DEBITS AND CREDITS - THE
DOUBLE ENTRY SYSTEM
ASSETS is a present economic resource
controlled by the entity that can be used to
● Accounting is based on a
produce positive economic value.
double-entry system which means
LIABILITIES - a present obligation of the that the dual effects of a business
transaction are recorded.
entity that hasn’t yet been fulfilled or paid
● Each transaction affects at least
in full or to acquire something on account.
two accounts.
● The total debits for a transaction
EQUITY - the residual interest in the must always equal the total credits.
assets of the entity after deducting all its ● abbreviation for debit are Dr (from
liabilities. Latin debere) and credit Cr (from
Latin credere)
INCOME - the generated profit that was
deducted to expenses.
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BASIC FINANCIAL AND REPORTING
The Accounting Equation and the Double-Entry System
by Win Ballada
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BASIC FINANCIAL AND REPORTING
The Accounting Equation and the Double-Entry System
by Win Ballada